FDIC examiners reported fewer instances of risky loan underwriting
practices at FDIC-supervised banks during the six months ending March
31, 1999, compared with the previous six-month period ending September
30, 1998. In addition, examiners reported a small proportion of banks
with "high" risk in current underwriting practices, loan portfolios
and loan administration.

While the data show a decrease in the occurrence of risky underwriting
practices since the previous examination, FDIC examiners did note concerns
about the level of "carryover debt" at FDIC-supervised banks
actively making agricultural loans. Carryover debt refers to loans that
are not paid off at the end of the growing season and are subsequently
carried over into the next growing season; this debt is sometimes included
in new loans.

"Low crop and livestock prices could translate into even sharper
future increases in the level of carryover debt for many lenders,"
said FDIC Chairman Donna Tanoue. "The FDIC plans to continue monitoring
the underwriting practices for agricultural loans and prices for crops
and livestock."

The most recent FDIC Report on Underwriting Practices comprises
responses from FDIC examiners to survey questions regarding the lending
practices at 958 FDIC-supervised banks examined during the six months
ending March 31, 1999. For the report, examiners give a general assessment
of each bank’s underwriting practices overall, as well as for specific
categories of loans.

Key findings of the latest report showed relatively few FDIC-supervised
banks with high risk in current underwriting practices, loan portfolios
and loan administration. For example:

Three percent of FDIC-supervised banks had "high" risk
in current underwriting practices for new loans;

Three percent had "high" potential credit risk in their
loan portfolios

Five percent had "high" risk in loan administration
-- typically the supervision and management of the loan process,
including verifying information in applications and monitoring loan
payments;

Only three percent failed to adjust loan pricing to reflect differences
in risk "commonly or as standard procedure" (down from
five percent during the previous reporting period), while eight
percent did so "frequently enough to warrant notice" (down
from 22 percent previously).

Four percent failed to require a material reduction in principal
before renewing term loans "commonly or as standard procedure"
(down from five percent in the previous report), while 20 percent
failed to do so "frequently enough to warrant notice"
(down from 33 percent).

The frequency of specific risky underwriting practices in major
loan categories also decreased from the previous reporting period, except
in the loan categories of business and agricultural lending. Approximately
29 percent of the FDIC-supervised banks active in agricultural lending
showed a "moderate" increase in the level of carryover debt
(up from 24 percent previously), and three percent showed a "sharp"
increase (up from two percent).

The report on loan underwriting practices, which was started in
early 1995, is one of a number of FDIC initiatives aimed at providing
early warnings of potential problems in the banking system. In addition,
the information gathered during examinations helps the FDIC target future
examiner resources and identify potential weaknesses in underwriting
practices that will draw additional attention during on-site examinations.

Beginning with this reporting period, the questions
and, in some cases, the possible responses to questions have changed
from past reports.

# # #

Congress created the Federal Deposit
Insurance Corporation in 1933 to restore public confidence in the
nation's banking system. The FDIC insures deposits at the nation's
10,461 banks and savings associations and it promotes the safety and
soundness of these institutions by identifying, monitoring and addressing
risks to which they are exposed.

Copies of the latest Report on Underwriting
Practices are available on the Internet (via the World Wide
Web at www.fdic.gov
), by fax (dial
804-642-0003 on your fax machine and follow the voice prompts to request
Document No. 259), or by mail or messenger (contact the FDIC's Public
Information Center at 800-276-6003 or (703) 562-2200).